On March 29, 2013, in the middle of a large loading dock at the port of Miami, former U.S. President Barack Obama was set to deliver a key speech on promoting U.S. infrastructure development. But minutes before his speech started, a big gust of wind blew off an American flag that had been strapped to one of the container cranes.

An event staffer quickly tried to fix it, but gave up and took the flag away. Now, observers could see the label behind it: “ZPMC” and the Chinese characters “振华” — which stood for Shanghai Zhenhua Heavy Industries, a crane manufacturer and subsidiary of the China Communications Construction Company (CCCC), one of China’s largest state-owned companies.

Obama’s staffers likely thought that prominently displaying the name of a Chinese company would not jibe with a speech aimed at promoting the strength of American manufacturing. But now, almost exactly ten years later, the U.S. government is not so much covering up its reliance on the firm as trying to expose it. 

On March 5, The Wall Street Journal reported that U.S. defense officials are growing concerned that ZPMC cranes may act as a “Trojan horse” for Chinese state espionage efforts. In particular, some officials believe that China’s government could be using ZPMC cranes to collect data on the U.S. military — tracking the contents and destinations of military-related shipments around the world. 

China’s foreign ministry called the report “overly paranoid,” and ZPMC did not respond to The Wire’s request for comment. But at least one other government signaled that it may share the U.S.’s concerns: South Korea recently announced that it is inspecting its ZPMC cranes over spy concerns. 

This week, The Wire looks at ZPMC: how it came to dominate ports around the world, its increasingly important role in Chinese foreign policy, and the consequences of the firm’s close links to the Chinese state.

SHORING UP

In 1992, Guan Tongxian, a 59-year-old official at China’s Ministry of Transport, was a year away from retirement after a decades-long government career. But after hearing former Chinese Premier Deng Xiaoping extol the virtues of free enterprise and economic reform in Deng’s famous ‘Southern Tour’ speeches, Guan felt inspired.

He decided to quit his job and invest his life savings into a new business named ‘Zhenhua,’ which translates to revitalizing or rejuvenating the Chinese nation. Guan, who had years of experience working in domestic ports, realized that he could produce and sell port infrastructure and equipment for a fraction of the cost of his competitors in the U.S. and Europe. But Guan received $1 million of investment from two government-related firms — the Shanghai Port Machinery Factory and Hong Kong Zhenhua — which brought his startup under the umbrella of the Chinese state.

In 1993, ZPMC won its first foreign contract to build cranes for the port of Vancouver. The next year, the port of Miami purchased four ZPMC container cranes, giving the firm a foothold in the American market. Ports in Tacoma, Oakland, and Long Beach quickly followed. 

By 1998, ZPMC became the world’s leading manufacturer of ship-to-shore cranes, which are used to load and unload containers from ships to docks. But ZPMC began to face criticism as its market share rapidly expanded. 

Competitors alleged that ZPMC ripped off their designs, and Guan later acknowledged that ZPMC largely copied its designs from other firms in the early years. Port officials also worried that ZPMC’s cheap price tags and quick turnarounds would come at the expense of safety and quality.

But ZPMC kept its customers and continued to expand amid the blowback. Vancouver, for example, made six more orders with ZPMC in the decade after its initial purchase. Guan also poured money into R&D efforts to help the firm break out from its copycat beginnings. In 2004, ZPMC pioneered the invention of the double crane, which could move two containers at the same time, cutting in half the amount of time ships needed to dock. 

By 2008, the company controlled 70 percent of the market share in ship-to-shore cranes, and it even won signature contracts that were outside of its main expertise, like building the San Francisco-Oakland bridge. 

Guan finally got his retirement in 2010, but by that point the global financial crisis was threatening to shake ZPMC’s stranglehold on the industry. 

NEW ERA

Fortunately for ZPMC, Chinese President Xi Jinping took power with a plan to bolster Chinese manufacturing on a global stage. Xi officially launched the ‘Belt and Road Initiative’ in 2013, a trillion dollar plan to invest in infrastructure and other projects around the world. 

“BRI was a big boost to the business of state-owned construction companies like ZPMC and CCCC,” says Stella Hong Zhang, a postdoctoral fellow at Harvard Kennedy School’s Ash Center.

In 2012, ZPMC suffered $185 million worth of operating losses. By 2016, ZPMC’s income statement was back in the green, with the firm reporting $23 million worth of profits. ZPMC now claims to have its equipment in over 270 global ports with a dominant 80 percent market share.

Experts say that U.S. concerns that ZPMC may be harvesting its data for the Chinese state could be valid, and that the firm would have no choice but to cooperate with government authorities if forced.

Part of the reason that ZPMC’s cranes have recently become a source of suspicion is that they  have become much more technologically advanced. ZPMC’s cranes are tech products as much as they are pieces of physical infrastructure, and are critical pieces in an industry push towards smart, automated ports. 

“It’s part of this smart port marketing idea that you can do logistics much more efficiently when it’s digital. That’s 100 percent true,” says Isaac B. Kardon, a senior fellow at the Carnegie Endowment for International Peace. “The problem is that… ZPMC basically gets the digital knowledge about what’s moving in the world, at what price, and all that spicy stuff.”

But while CCCC, and ZPMC by proxy, ultimately answer to the Chinese state, Zhang says the state-owned firms do not generally operate as purely political actors. 

“Commercial considerations have to happen for projects to be able to take place,” she says, adding that CCCC likely acts as more of an administrator than a traditional parent company — handling only broad strategy initiatives while allowing ZPMC to handle day-to-day operations.

“CCCC is a gigantic company… It’s really an entire sector by itself,” she says. 

Whether or not ZPMC’s data might pose a threat to U.S. national security also remains up for debate.

“There’s still a lot of disagreement whether some of this is a little bit overblown or representative of broader security concerns that the U.S. really needs to pay attention to,” says Michael Bennon, program manager at the Global Infrastructure Policy Research Initiative at Stanford University.

Either way, Brock Silvers, chief investment officer of Kaiyuan Capital, notes that ZPMC’s shares have taken a 5 percent hit since the WSJ report on the firm earlier this month. 

“International investors are now keenly aware of a growing U.S. vigilance toward Chinese-listed companies,” he says. ”No one wants to be caught unaware by an addition to the U.S. blacklist.”

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